Eddie Bauer Holdings, Inc. first quarter ended April 1, 2006, total revenues were $194.5 million, compared to $221.9 million in the first quarter of 2005, a decline of 12.3%. Total revenues for the first quarter of 2006 included net merchandise sales of $180.6 million, shipping revenues of $8.2 million, licensing royalty revenues of $4.0 million, royalty revenues from foreign joint ventures of $1.6 million, and other revenues of $0.1 million. In the first quarter of 2005, total revenues included net merchandise sales of $206.6 million, shipping revenues of $9.4 million, licensing royalty revenues of $4.2 million, royalty revenues from foreign joint ventures of $1.5 million, and other revenues of $0.2 million.
Net merchandise sales for the first quarter of 2006 included $125.9 million of sales from Eddie Bauer’s (the “Company) retail and outlet stores, $54.6 million of sales from its direct channel and $0.1 million of other merchandise sales. This compares to $143.7 million of sales from the Company’s retail and outlet stores, $62.8 million of sales from its direct channel and $0.1 million of other merchandise sales in the same period last year. Comparable store sales for the first quarter of 2006 declined by 10 percent versus the prior year quarter. Comparable store sales include net sales from retail and outlet stores that have been open for one complete fiscal year.
Gross margin for the three months ended April 1, 2006 was $48.6 million, representing a decrease of $21.5 million from the pro forma gross margin for the three months ended April 2, 2005. Gross margin percentage for the first quarter of 2006 declined to 26.9% from a pro forma gross margin of 33.9% for the first quarter of 2005. The principal factor impacting the decline in gross margin percentage for first quarter 2006 versus the pro forma gross margin percentage for the prior year quarter was the higher level of markdowns taken in order to drive merchandise sales.
The Company’s historical net loss for the first quarter of 2006 was $35.6 million, or $1.19 per diluted share, compared to a net loss of $8.6 million in the first quarter of 2005. Per share amounts have not been reported for the first quarter of 2005, because the Company was a wholly-owned subsidiary of Spiegel, Inc. at that time, and there were no shares outstanding for the combined Eddie Bauer entity. The Company emerged as a stand-alone entity on June 21, 2005 when Spiegel’s Chapter 11 Plan of Reorganization was declared effective and 30 million shares of Eddie Bauer Holdings common stock were distributed to satisfy pre-petition claims. The net loss for the first quarter of 2005, stated on a pro forma basis, was $16.1 million. These pro forma results were adjusted to reflect the implementation of the Plan of Reorganization and the company’s emergence from bankruptcy as if it had been completed at the beginning of 2005.
Income (loss) from continuing operations before income taxes, interest expense and depreciation and amortization expense, or EBITDA, for the first quarter of 2006 was a loss of $19.5 million compared to income of $4.7 million for the first quarter of 2005 on a pro forma basis. EBITDA is a non-GAAP financial measure that the Company believes is an important metric because it is a key factor in how it measures its operating performance and it is a key objective in the Company’s annual incentive plan. See Unaudited Supplemental Financial Information for a reconciliation of EBITDA to its most comparable GAAP measure income (loss) from continuing operations before income tax expense (benefit). In addition, the Company incurred pre-tax non-cash stock-based compensation expense of approximately $3.3 million in the first quarter of 2006 (none was incurred in the first quarter of 2005 on a pro forma basis).
On May 1, 2006, the Company filed its Form 10 with the Securities and Exchange Commission, which included audited financial statements for 2005 and an overview of strategic initiatives underway intended to improve financial performance. As noted in the Form 10, in an effort to revitalize the Eddie Bauer brand, the Company had introduced too many changes in the Fall/Holiday 2005 collection, and is taking a number of actions to modify its assortments to recapture the interest of its core customers. Due to the long lead times in its business, the Company does did not anticipate seeing the impact of these efforts on its financial results until the second half of 2006.
Fabian Mansson, Chief Executive Officer, commented, “As expected, the first quarter was challenging. While we have taken aggressive steps to refocus our product collection to be better aligned with our core customers preferences, it is too soon to expect to see the impact of these efforts in the first quarter. We do, however, remain confident in our direction. We believe that Eddie Bauer’s legacy and outdoor heritage continue to be strong differentiators for our brand in the marketplace, and we are taking steps to better leverage this key strength. We look forward to re-capturing positive momentum in our business and to capitalizing on the long-term potential of the Eddie Bauer brand.”
As of April 1, 2006, the Company operated 373 retail and outlet stores in total, consisting of 265 retail stores and 108 outlet stores.
In addition, on May 25, 2006 Eddie Bauer Holdings, Inc. announced that it intends to explore strategic alternatives to increase shareholder value, including among others, a possible sale of the Company. The Company has retained Goldman, Sachs & Co. as its financial advisor to evaluate and assist with a possible sale. There can be no assurance regarding the timing of, or whether, this process will result in any sale or other transaction. The Company does not intend to provide updates or make any further comment until the outcome of the process is determined.
